June 17 (Bloomberg) -- Wall Street is headed to Russia as
President Dmitry Medvedev tries to lure investors with state
asset sales and revive the allure of the slowest-growing economy
among the major emerging nations this year.

Citigroup Inc.’s Vikram Pandit, Bank of America Corp.’s
Brian T. Moynihan, Blackstone Group’s Stephen Schwarzman and
Deutsche Bank AG’s Josef Ackermann are among the bankers
circling St. Petersburg for the annual economic forum. Medvedev
is trying to combat Russia’s reputation as the world’s most
corrupt major economy amid investor uncertainty about the future
of his ruling tandem with Prime Minister Vladimir Putin.

The president will use the showcase to counter concern
about Russia’s investment climate by unveiling a $10 billion
sovereign fund to stimulate domestic private equity and a move
to expand a $30 billion asset sale program. The plan to auction
off company holdings will be the “thrust” of the president’s
speech, Arkady Dvorkovich, his economic adviser, said June 15.

“They remain skeptical but are at least willing to sit
down at the table because he keeps talking the talk they want to
hear,” Bernie Sucher, a board member of Aton Capital and the
former country head of Bank of America Merrill Lynch in Russia,
said by phone from St. Petersburg on June 15.

Citigroup, Goldman

Banks including Citigroup and Goldman Sachs Group Inc. are
boosting their Russia headcount even as investors pause to see
who will be in charge. JPMorgan Chase & Co.’s Jamie Dimon,
Citigroup’s Pandit and Goldman’s Lloyd Blankfein are among a
panel of 27 advising the Kremlin on how to turn Moscow into a
global financial center.

The central bank on June 14 picked Goldman Sachs, JPMorgan,
Morgan Stanley, Credit Suisse Group AG and Troika Dialog to
manage a sale of part of its stake in OAO Sberbank, the
country’s largest lender, in a transaction worth as much as $7
billion.

The government also has shortlisted Morgan Stanley,
JPMorgan and Deutsche Bank to manage an IPO of OAO Sovcomflot,
Russia’s biggest shipper.

Last year was the biggest for Russian mergers and
acquisitions since 2007, helped by 96 deals worth $50.9 billion
in the fourth quarter alone, Bloomberg data show. Russia has
seen deals worth $36 billion in the first half, up from $26
billion for the same period a year earlier.

Changing Landscape

“A large part of why these banks are coming to St.
Petersburg is because of this M&A and privatization business,”
said Clemens Grafe, chief economist for Goldman Sachs in Russia.
“The old corporate landscape is changing. Russian international
corporations like Rosneft want to integrate with the West.”

The authorities plan to raise $30 billion by 2015 from the
sales, helping to improve corporate governance and replenish
state coffers, Economy Minister Elvira Nabiullina has said. OAO
TransContainer, a unit of Russia’s rail monopoly, was the last
state-owned company to hold an IPO, raising about $400 million
in November 2010.

Russia’s economy needs a “multifold” increase in
investment to be modernized, Medvedev said March 30 while
unveiling his 10-point program to make the nation more
attractive to investors. The measures included removing senior
officials from the boards of state companies they oversee,
approving a state-asset sale program for the next three years
and proposing a law on minority shareholders’ right to
information.

‘Big Stuff’

“This is big stuff,” Liam Halligan, the chief economist
at Prosperity Capital Management in London, which oversees more
than $5 billion in Russia and the CIS region, said in an
interview. “You’ve now got very senior people in the government
stepping down from running multibillion-dollar companies. That
should be seen pretty positively.”

Even so, Medvedev, who has called Russia’s reliance on oil
“humiliating,” said the investment climate remains “very
bad.” The nation’s failure to stop corruption and diversify the
economy means it needs $200 a barrel oil to match the economic
growth of China and India, Mikhail Khodorkovsky, the former
billionaire jailed since 2003, said in written answers to
questions relayed through his lawyers.

Khodorkovsky said his case should remind global business
leaders gathering in St. Petersburg that no one is safe from
extortion. Graft threatens the foreign investment Medvedev to
help boost growth to as much as 10 percent, he said.

Market Correction

Russia’s 30-stock Micex Index has dropped 7.9 percent so
far this quarter and was the first among benchmark measures in
the world’s 20 largest equity markets to fall at least 10
percent from a recent peak, the common definition of a
correction, since mid-March.

Russia may have total net outflows of $30 billion to $35
billion for 2011, roughly equal to the $35.3 billion of capital
that left last year, central bank First Deputy Chairman Alexei
Ulyukayev said May 31. Investors pulled $353 million from
Russian stock funds in the week to May 18, the biggest outflow
since 2006, EPFR Global data show.

Political uncertainty is “part of the reason, but I think
it’s more complicated than that,” Roland Nash, chief investment
strategist at Verno Capital, said June 10 in a telephone
interview. “There’s the general business environment.”

Putin, 58, chose Medvedev, a 45-year-old lawyer from his
hometown of St. Petersburg, as his successor in 2008 because of
a ban on serving three consecutive terms. Neither Medvedev nor
Putin has ruled out running for president in 2012.

“Russia is far from a perfect place to do business but
there is plenty of easy money to be made for global banks
involved in big deals and privatizations,” Michael Kart, a
managing partner at Moscow-based investment company Spectrum
Partners Ltd., said in e-mailed comments. “It’s a matter of
holding your nerve.”